Goldman’s Cohn Says Public May Not Understand Bond Risks

Goldman Sachs Group Inc. President Gary D. Cohn said interest rates at or near record lows eventually will rise and that he’s concerned some investors don’t understand that bonds will lose value.

“There is really only one way that interest rates can go,” Cohn, 52, told Stephanie Ruhle on Bloomberg Television’s “Market Makers” program. “I’m concerned that the general public doesn’t quite understand the pricing of bonds and interest rates and the inverse correlation between the two.”

Cohn, a former head of fixed-income trading at New York- based Goldman Sachs, said the U.S. has undergone a 32-year bull market in bonds and that most other major central banks have “some type of zero interest rate policy.” Fixed-income funds attracted more money last year than stock funds for the sixth straight year, according to Morningstar.

“Obviously this needs to come to an end at some point,” Cohn said. “I’m not predicting it comes to an end anytime soon.”

Dan Fuss, whose Loomis Sayles Bond Fund beat 98 percent of peers in the past three years, said on Jan. 30 that the fixed- income market is “the most overbought market I have ever seen in my life.” Federal Reserve Governor Jeremy Stein warned last week that the market for speculative-grade debt may be overheating.

Photographer: David Maxwell/Bloomberg

Goldman Sachs Group Inc. President Gary D. Cohn said that the U.S. has undergone a 32-year bull market in bonds and that many other countries have reduced interest rates significantly. Close

Goldman Sachs Group Inc. President Gary D. Cohn said that the U.S. has undergone a... Read More

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Photographer: David Maxwell/Bloomberg

Goldman Sachs Group Inc. President Gary D. Cohn said that the U.S. has undergone a 32-year bull market in bonds and that many other countries have reduced interest rates significantly.

Small Businesses

Cohn was speaking from Cleveland, one of the cities where Goldman Sachs provides education and funding for small-business owners. He said the firm’s 10,000 Small Businesses program has about 1,300 graduates, and 50 percent have hired more workers.

Small businesses have a harder time getting new capital than large firms, Cohn said.

“Obviously interest rates affect larger businesses more than small businesses,” Cohn said. “Unlike the big businesses, small-business owners -- their ability to borrow money is very difficult. For them to get access to money, they need to have a very distinct need for it.”

Goldman Sachs, the fifth-biggest U.S. bank by assets, focuses primarily on advising, financing and investing with large companies and institutional investors.

To contact the reporter on this story: Christine Harper in New York at charper@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net

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